Digi.com - Impacted By Lower Non-Internet Revenue

Date: 29/01/2021

Source  :  PUBLIC BANK
Stock  :  DIGI       Price Target  :  4.50      |      Price Call  :  BUY
        Last Price  :  4.20      |      Upside/Downside  :  +0.30 (7.14%)

DiGi reported an 18.3% YoY decline in 4QFY20 net profit, mainly dragged by lower non-internet revenue. For the full year, the results came in within consensus but below our forecasts due to lower-than-expected data monetisation from the internet and digital segment. As a result, we cut our FY21-22F earnings by 3%-6%. Although revenue has been affected by the decline in migrant workforce in the country, DiGi will continue to focus on growing its Malaysian data and digital revenue to cushion the effect of the pandemic. We note that its Malaysian subscriber base has increased by about 6% YoY. A fourth interim dividend of 3.6sen per share was declared, bringing its total DPS for FY20 to 15.6sen or a yield of ~4%. We continue to like DiGi given its sustainable and above-average dividend yield. Maintain our Outperform rating on DiGi with a revised TP of RM4.50 (RM4.75 previously).

  • 4QFY20 revenue fell by 7% YoY. Mobile service revenue fell by 6% YoY largely due to a decline in non-internet revenue following the drop in migrant workforce on the back of the restrictions in place to curb the spread of Covid-19 (which resulted in limited inflow of foreign workers into Malaysia). As borders remain closed, roaming revenue was also affected. Prepaid subscriber base was 10% lower while ARPU gained 6.7%. Meanwhile, postpaid subscriber base remained relatively flat on a lower ARPU of -8.3%. To cushion the effect of migrant worker declines, DiGi will continue to focus on growing its Malaysian customer base by introducing competitive and entry-level 4G phone bundles targeting the work/study from home market as well as the youth segment.
  • 4QFY20 net profit down 18.3% YoY. The impact of lower revenue was partially offset by an 8% decline in total cost with COGS improving by 12.5% YoY while opex dropped marginally by 3% YoY. As a result, EBITDA margin remained unchanged at 49%. Although depreciation charges fell by 5% YoY, an RM51m of write-off on network assets was recognized during the quarter. Coupled with an increase in net interest cost due to higher finance lease liabilities under MFRS 16, net profit declined by 18.3% YoY to RM280.2m.
  • Outlook. DiGi will continue to invest in network modernisation to improve on internet quality and customer experience. Capex to revenue is targeted at 14-15% in FY21F. The group is also expected to achieve greater cost optimization through digitization of its core and IT functions, particularly billing and capacity upgrades.

Source: PublicInvest Research - 29 Jan 2021

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